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Would you buy a 100-year bond?

August 23, 2010 | 11:05 am

The ravenous investor appetite for bonds this summer suggests that many people don’t believe that interest rates will ever rise again.

If that’s your view, railroad Norfolk Southern Corp. has a deal for you: a 100-year bond at an interest rate that will stay fixed until the security matures . . . in 10 decades.

From Bloomberg News:

Norfolk Southern, the fourth-largest U.S. railroad, plans to sell $100 million of 100-year bonds . . . as companies take advantage of record-low borrowing costs to lock in long-term funding.

The bonds may be sold as soon as today and yield about 6%, according to a person familiar with the transaction, who declined to be identified because terms aren’t set.

Over the last two decades, so-called century bonds have been issued by companies including Walt Disney Co., Ford Motor Co. and IBM Corp. Norfolk Southern has previously sold two such issues, the last one in 2005.

But century bonds are relative rarities. Typically, the longest-term bonds issued by companies and governments are 30-year issues.

Buying a 100-year bond is a major leap of faith, not just for the assumption that the bond’s fixed yield will be attractive for that entire period (i.e., that market interest rates won’t be higher in a few years, or a few decades), but also for the bet that the issuing company or its successor will be around to repay the principal amount 100 years from now.

Then again, principal repayment would be a concern for your heirs, not you. Chances are you’ll be long dead by the time the bond matures.

-- Tom Petruno

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